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Lay the Favorite: A Memoir of Gambling [...and other books about gamblers]

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chin:
In the middle of reading The First Tycoon, I took a break and read this memoir of a young girl's adventure in the realm of professional gambling. The form of gambling she wrote about were betting sports, horses, making books either on shore inside US, or off shore in the Caribbeans.

This is an interesting book on an interesting subculture. It sort of read like a novel to me, thus I am not sure to believe some of the stories or not. However the author did have some keen observations and comments on the characters.

In the late part of the book, she recounted in detail her works and stories in a Caribbean book making operation, and how it eventually failed. When reading this part, I could help but to relate to my comment on The Eudaemonic Pie. The reason of failure is almost the same - that the business was not ran on business principles, that emotion and ideology overcome logic.

The below is a short review of the book by someone who is making a living from horse racing.

chin:
BTW the quick rise-and-fall seems to be a recurrent theme in books about gambling and stock market speculations. Beside this book, The First Tycoon touched on a few "stock operators" rise and fall (not Vanderbilt). Very similar story in Reminiscencse of a Stock Operator. A few other books mentioned on this site also had similar stories. An example of self-selection by yours truly?

q:

--- Quote from: chin on 02 October 2010, 02:58:25 ---BTW the quick rise-and-fall seems to be a recurrent theme in books about gambling and stock market speculations. Beside this book, The First Tycoon touched on a few "stock operators" rise and fall (not Vanderbilt). Very similar story in Reminiscencse of a Stock Operator. A few other books mentioned on this site also had similar stories. An example of self-selection by yours truly?

--- End quote ---

Maybe.  But whether the story is non-fiction, fiction, or somewhere in between it's usually more interesting if it details rise and fall, or at least rise from humble beginnings (the last may be my personal preference).

chin:
Instead of starting another thread on this book, I am just adding the short comment here.

The author punts for a living in the UK. The core of his expertise (which he calls the engine room of his operation) is what he called a tissue. The tissue is what sets him apart and ahead of the majority of gamblers.

The author realized very early on in 1994 or so that "if you just try to pick winners you can't win, but if you play the percentages, you can." So for each race, he priced up every horse based on his view of each horse's winning chance, and bet all horses that offers significant higher price than the estimate. This set of his own reference price is what he called a "tissue". In essence, it's a probability model and he only bets high expected value horses.

In UK, the majority of the betting actions are with bookmakers. And bookmakers do not like consistent winners. So one of the recurring problem for the author is how and where to place his bet. He's essentially blacklisted by bookies. Thus he has to use his friends' accounts, etc... which created additional potential problem of timely collection, operational complexity, etc... If there is anything to learn from this, it's that one should avoid betting against the bet taker, because it cannot be a long term business.

In around 1993, after lost his job as a trader at Credit Lyonnais, he started to full time gambling with capital of GBP50,000. In the book, he said that in 2003 & 2004 he made GBP260,000 & GBP325,000 respectively, and in 2005 only GBP4,000. And in the final months of 2005 he was almost wiped out before a large recovery. These figures seems to be gross winning before deducting expenses (of well over GBP100,000/yr) to be shared with his betting partner, so I am guessing his accumulated betting capital was a few hundred thousand GBP by 2005.

I did not find any reference in the book as to how he size the bet, or allocate capital. However from the bits and pieces about his betting volume and swings, I suspect he may be over betting. If so, he could have problems in optimizing how much to bet. Given that he focused and bet big on a few large annual racing festivals, it seems to me he would risk more than a few percent of his capital on one single race.

For a single individual who can net a few hundred thousand GBP a year tax free, it was good money and no easy task. It was a 7-day a week job starting from 8am to evening.

He also had side jobs like selling tips, and commenting on racing TVs. Now he also have income from selling books.

chin:
This is the 2nd book I read by a pro gambler betting horses in UK. It took me a long time to finish this book, because the middle 50% of the book is very boring.

The book starts with an intrigue on page 1 that attracted my attention. He mentioned that over the years, his return on turnover stood at 16.7%. At the end of the book, the author tallied total winning of £10 million over the 8-year period documented in the book. In other words his total betting would be around £60 million.

For any investment professional who traded repeatedly over a period of 8-year or so, this average return on turnover is very high, and could easily translate to well over 100% return on capital per year. In fact about 30 pages of the early part of the book was about how his life was threaten by criminals and that he had to went into hiding, and that when the case settled and he re-started his full time betting, his capital then could not have been more than a few hundred thousand £. His capital gain over the period was truly remarkable!

Just like what I have learned reading the previous book on punting in UK, one of his major challenge was very operational - that is to place large enough bets with bookmakers. His solution is to use a large, and very likely multi-level, team of agents to place bets for him. He did not pay salary to these agents - instead the agents put their faith on him betting along side. (So at the end of the book, he said that for him to earned £10 million, the bookies probably lost £20 millions or more.) One of the pictures and descriptions saw him with more than 10 hand phones on his desk. One of the chapters was entirely about how he organized a betting coup, with 3 waves of betting by different means and channels, in order to bet enough.

The middle 50% of the book was very boring to me, as he talked about some of the major winnings with only a short description on each win. Since I don't really know any significance or prominence of the horses, jockeys, trainers, races or traditions involved, it was just a long list of numbers and names. If there was anything to get out from this part, it was the impression that many of his winnings were due to the fact that he co-owned those horses and knew about the true progress and fitness of those horses.

In other words, the stories reinforced the stereotypical image that horse race betting is an insiders' game.

In Britain, the prize for the winning horse is so small that there is no hope for the owners and trainers to cover the cost of keeping horses from purse alone. From reading another book on British racing, it seemed that the UK government has upheld the philosophy that owning race horses should be a wealthy person's hobby and resisted calls to subsidize racing by legislation. So trainers and owners would go in great length to hide the true ability of a horse, in order to land a betting coup for financial gains.

I think in other racing market where the betting is pari-mutuel, books like this won't be published because winning by hiding information from the public would be at least immoral, if not illegal. But in UK you bet against the bookmakers, instead of the gambling public, winners like the author of this book would actually be seen like a hero.

---

Other bits and pieces of interesting info from the book:

- he apparently was very gifted in mathematics, and accepted to the Trinity College at Cambridge at 16 (but couldn't study there until turning 18.) But he left the college without finishing the degree, because his started to gamble on horses and was very successful.

- when he returned to full time betting after coming out from hiding, his personal and business expenses was £3,000 per week, or £150k per year. Very similar to Dave Nevison in the post above.

- in the chapter that he talked in detail one of his major betting coup with 3 waves of betting, the 3rd wave was backing the horse on betting exchanges. After the 1st and 2nd wave betting with bookies, the odds have dropped from 100x to 16x and aroused lots of attention. Many traders on the exchange would have backed the horse in the early movement and would looking for trading out to lock in a profit. With the readily available offer to trade out, he was able to bet all the way down to 10x. This bit is very interesting because it contrast sharply "trading" vs "investing".

Yesterday I happened to read about a betting exchange trader who bet £250 million a year to earn maybe £500k, or 0.2% profit margin. Traders trade with "sure win" strategies for small % profit, and need to turnover very large amount to earn meaningful profit. Guys like Veitch who buy-and-hold took the risk but ended up much higher profit margin in the long term.

- the book does not talk much about how he handicap the races. But there is one message that was emphasized and repeated by many other successful investor gamblers - that picking the winner is not enough. Picking value is the key to profit.

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